What do we do with the grain in Ukraine?
Last week the ProAgro Group, an information and analytical group of companies, held a conference via the internet titled, “What to do with grain? Strategies for grain processing development in war and post-war time.”
The conference, which was attended by about 350 participants, was tasked with answering one main question, ‘What does Ukraine do with the new crop of grain and the large inventory leftover from last season?’
After more than 5.5 hours of discussion, that question remained unanswered by industry stakeholders.
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Vultures and Prey
The conference was divided into two parts. The first part was given by representatives of the bioenergy industry (e.g., production of biogas, biomethane, bioethanol, etc.). The second part was given by representatives of the elevator and oilseeds crushing industry.
In general, I would characterize this conference as “vultures and prey.” To clarify the meaning of such a title, I provide opinions of panelists about the problems and possible solutions voiced during the conference. First, the problems of grain producers and processors, and then the proposals of representatives of the bioenergy industry.
The Prey: Grain producers’ and processors’ problems
Rodion Rybchynskyi, head of the Union Millers of Ukraine
The total grain storage capacity in Ukraine is 75 million tons but considering the areas with active hostilities and occupied territories, only 61 million tons of storage capacity can be considered available. The total gross harvest of grain and oil crops in 2022 is predicted to be 68.3 million tons. Thus, the shortage of grain storage capacity for the new crop is 16 to 20 million tons. Harvesting wheat and barley is also highly problematic now, as their price (EXW) fell to UAH 1,000 to 1,200 ($35 to $40) per metric ton. Less than 2,000 tons of flour were exported.
Stepan Kapshuk, the CEO of the Union of the Vegetable Oils Industry
Before the war, about 70 oilseed crushers were in operation and 50,000 to 70,000 tons of vegetable oil were being produced per day. Because 35 crushers are in the occupied territories or are in a hostile military zone, operation has stopped. Currently, only 15 oilseed crushing plants, which can produce 15,000 tons of vegetable oil per day, are operational. The remaining 20 crushers, which are in territory controlled by Ukraine, are idling because the market is saturated.
While vegetable oil can still be sold somewhere, the price of sunflower cake is already less than UAH 2,000 ($68 USD) per ton (official exchange rate set by the National Bank of Ukraine). Before the war, the price of sunflower cake was about UAH 3,000 to 4,000 (about $120 to $160 USD per ton. The exchange rate then was about $1 USD = 25 UAH.). At the current exchange rate of $1 USD = 36 UAH, the price of cake (EXW basis) is $55 USD per ton or less. This is because the demand, especially from the animal breeders, significantly dropped and the logistic costs skyrocketed. As a result, many oilseed crushers decided it was less costly to burn the oil cakes instead of trying to sell them.
In June, Ukrainian railways transported 80,000 tons of oil and 52,000 tons of cake. The Ukrainian railway raised tariffs from UAH 2,100 to UAH 2,800 ($71 to $95 USD) per ton of oilseeds, but more importantly for the industry is the lack of timeliness of delivery and the speed of crossing the border.
After the war began, sales of sunflower oil and cakes fell nearly twofold. A barter system has also resumed, which does the industry more harm than good. Holding back sales in anticipation of a higher price before the war resulted in only 9 million tons out of the 16 million tons of sunflower crop harvested being crushed.
Recently, sunflower seeds have begun being exported through Bulgaria and Turkey.
Eighty thousand tons of soybeans were also processed. Belarus was the main importer of soybean meal before the war. Currently, soybean meal is exported to the EU and Turkey. Two million tons of rapeseed is also expected to be processed.
Unfortunately, Europe does not need such volumes of vegetable oil: the main potential consumers are India (oil) and China (oil and cake). Another 20 sunflower crushing plants potentially are ready to start crushing, but they are idling due to the lack of demand for their products.
This year, 5.2 million tons of vegetable oil will be produced, of which 4.3 million tons is expected to be exported. 400,000 tons of sunflower oil is expected to be consumed domestically, and there is expected to be 450,000 to 500,000 tons of carry-on stocks (inventory leftover from last season) of vegetable oil in ports that cannot be exported.
This year, 12 million tons of sunflower seeds will be harvested, of which 2 million tons will be exported.
The only way out is to unblock the Black Sea ports and to reduce shipping freight. For example, the cost of delivering cake to Turkey is $227 per ton, while its price in Turkey is $270 per ton, making its export unreasonable. It is also why cake will be burned, which is difficult because there are restrictions on harmful emissions in Ukraine. For grain prices of UAH 1,200 ($40) per ton, grain must either be burned or not harvested at all.
Boris Shestopalov, co-founder and CEO of DG-Group
Half of the enterprises closed because of the war. The construction of new dry terminals in Poland will increase throughput by, at most, 1 million tons per month. It will not solve the problem, since there is a need to also export non-agricultural products, like metal, ore, etc. It has become unprofitable to export bran. Although humanitarian aid played and continues to play an extremely important role, it otherwise has a negative effect on the domestic food industry, as 50,000 tons of foreign-produced food was imported as humanitarian aid.
A significant decrease in the income of the population resulted in the strong shift in demand toward low-margin products and non-packaged (sold by weight) products. For the processing industry, it is no longer about profits, but about survival.
In connection with the war, problems with the administration of the VAT added to the mess. That is, the current taxation system exacerbates the wartime economy.
Shamil Malachiyev, deputy general director of Agro-Yug-Servis
The domestic market is oversaturated. Eighty percent of Ukrainian grain and flour are sold in North Africa and the Middle East. But the logistical costs of exporting them via Poland make export unprofitable.
The grain and flour markets lost by Ukraine will be filled by the EU, USA, Canada, and Australia. As an option for survival, there may be the development of flour mixtures for Europe and the increase in the export of confectionery products.
Iryna Broslavtseva, CEO of Dobrodiya Foods
The food industry faces problems with personnel because many female workers fled with their children either abroad or to Western Ukraine. On the domestic food market, a competition intensifies, leading to further price decreases. Also, in the spring, during the most active phase of military operations, a lot of foodstuffs were imported. At the same time, Russia quadrupled its flour exports.
The vultures: proposals of representatives of the bioenergy industry
The speakers of this part of the conference had one thing in common – most were sellers of the corresponding equipment. Accordingly, their reasoning was based on examples of the positive results of bioenergy technologies for processing grain, manure, and other organic materials into biofuels and related products such as fertilizers and soil improvers.
The speakers based their arguments on the experience of the EU countries, the USA, Brazil, Argentina, etc., while forgetting to mention completely different economic and environmental incentives for the use of these technologies, as well as completely different climate conditions. For example, ethanol in Brazil is produced mainly from sugar cane, which is a perennial crop and costs much less to grow than sugar beets in Ukraine. Ethanol production from corn in Brazil has also been growing recently. However, growing genetically-modified corn in Brazil is also cheaper compared to growing conventional corn in Ukraine's cooler climate.
When asked what to do with grain now and in the coming months, representatives of the bioenergy industry said it was necessary to build biogas, biomethane, bioethanol, biodiesel, etc. plants. The same opinion was expressed by Taras Vysotskyi, the Deputy Minister of the Ministry of Agrarian Policy and Food of Ukraine. However, he admitted there are no transshipment points of bioethanol from Ukrainian to European gauges at the border crossing points.
Some presentations were odd, to put it mildly. For example, Georgii Geletukha, Chairman of the Board of the Bioenergy Association of Ukraine (UABIO) said that for Ukrainian growers, it is twice as profitable to grow silage for biomethane plants than to grow wheat or corn for food and feed.
Geletukha stated: “It is possible to inject 1 billion cubic meters of biomethane into the gas transportation network, for which it is necessary to have 100 plants with a capacity of 10 million cubic meters of biomethane per year. The payback period is approximately 5 years (at methane prices of EUR 900/1000 m3). At the same time, the total investment will amount to 1.5 billion euros. The raw material to produce biomethane in Ukraine is corn silage (80%) and crop residue and manure (approximately 10%). Spoiled grain, which is not suitable for use for food purposes, can be processed into biogas.”
Unfortunately, Geletukha does not consider the fact that the costs of all input resources (e.g., seed, fertilizer, fuel, pesticides etc.) also increase simultaneously.
Prey versus vultures
What are the main objections of the prey compared to the arguments of vultures?
“From 2.5 million tons of rapeseed, one can produce 1 million tons of oil or 1 million tons of biodiesel, but in Ukraine the government program to produce biodiesel died, and a law about the mandatory content of 5% of biofuels in fossil fuels was not adopted,” Kapshuk says. “The price of rapeseed in the port of Reni on the Danube River is $380 per ton while the price of diesel is UAH 60 ($2) per liter, which means it makes sense to process rapeseed into biodiesel. But the production of biodiesel at food industry enterprises is prohibited, so it must be produced at oil refineries, which in most cases now are not functioning or were destroyed. The biodiesel unit at oilseeds crushing plants costs $15 million (a plant to produce 100,000 tons of biodiesel per year). There will be no production of biodiesel since the EU buys practically all rapeseed for its own use (Last year, the EU bought 2.4 million tons of rapeseed out of 2.7 million tons harvested in Ukraine.).
The USA produces 140 million tons of corn for bioethanol while next to each bioethanol plant there are animal complexes for 50 to 60 thousand heads of cattle. While it is possible to process grain into bioethanol in Ukraine, where do they put distillers’ grains? There are currently 400,000 head of cattle in Ukraine. To make bioethanol production profitable, there must be at least 5 million head of cattle to feed the distillers’ grains.
There are not enough raw materials to produce biomethane in Ukraine. There are also no technologies in Ukraine to produce biomethane from grain. It may take up to a year to build new biogas, biomethane, or bioethanol plants. What do we do with grain right now? Where do we get the money to build such a plant? According to practically all experts, there will be no investments in Ukraine while the war continues.
While the payback period for a biogas/biomethane plant is about five years, the investment may be a waste of money and effort if the Ukrainian Black and Azov Sea ports become unblocked in the coming months.
There was one small piece of good news. After the Ukrainian army had thrown Russians away from Snake Island, it became possible to speed up exports via ports on the Danube River (e.g., Izmail, Ust-Danube, and Reni.). Now barges with grain can move from these ports to the Constanta Port in Romania, where grain will be transshipped to vessels of the Panamax size, not only by the Romanian Danube–Black Sea Canal (Sulina distributary of the Danube River) but also by the Ukrainian Deepwater Navigation Course “Danube–Black Sea”, aka “Bystroye Canal.”
However, we are far from solving the problem of how to export Ukrainian grains by sea. Until the Ukrainian Black and Azov Sea ports are unblocked, the Ukrainian agriculture and food and processing industry will be dying slowly.
About the Author: Iurii Mykhaylov is an agricultural journalist in Ukraine.